When Is Clothing Exempt from Sales Tax?

Jun 17, 2016
| Laura McCamy

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If you sell clothing online, you are in the unenviable position of selling a product that is subject to sales tax rules that vary widely among states. Some states tax all clothing and some exempt certain clothing from sales taxes. Navigating your nexus obligations will mean understanding when and where states consider clothing exempt from sales tax.

Clothing Is Taxable

If you sell camisoles in California, your products are taxable. Period, end of story. The same is true if you have nexus in Colorado, Texas, Florida, and most of the other states that levy state sales taxes. For online sellers, however, the sales tax picture is not quite so simple.

So you set up your online store, Camille’s Camisoles, and you think you have this sales tax thing handled. You charge sales tax to your California customers. You use a warehouse in Washington State, which gives you nexus. You add WA sales tax to your orders shipped to that state. NBD.

You start an affiliate marketing relationship with the blog Camisole Connection, which delivers lots of paying customers to your site (yay!). And then things get interesting.

Clothing Exempt from Sales Tax

The Camisole Connection blog is based in New Jersey. Suddenly, you're shipping lots of orders to Jersey City and Asbury Park. Your camisoles are a hit on the Jersey shore. You rack up $10,000 in sales through your affiliate and, boom, you have click-through nexus in New Jersey.

You are ready to change your online shopping cart to add New Jersey sales tax. But wait -- don’t hit that button! New Jersey, like Minnesota and Vermont, considers clothing a necessity and doesn’t add any sales tax.

Limited Sales Tax Exemptions for Wearables

One thing leads to another, and you find it makes sense to contract with a fulfillment company to ship your East Coast orders. The company you hire is based in New York, so now you have another set of idiosyncratic laws about sales tax on clothing to program into your online shopping cart.

New York, like New Jersey, recognizes that everyone must buy clothing. But the Empire State differentiates between necessity and luxury by adding sales tax only to higher-priced items. Single items of clothing priced at under $110 are not taxable. Those at $110 or more are subject to New York’s destination-based sales tax rates on the full purchase price.

Being the smart business owner that you are, you set the price for your fancy silk camisole at $109.99. And you’re so smart that you also have your eye on Massachusetts, where clothing is tax exempt up to $175 (and then tax is added only to the portion of the price above $175). You’re even looking out for tiny Rhode Island, where sales tax only applies to clothing valued at over $250. If you ever decide to sell a ruby-encrusted camisole, you’ll need to know about this.

The Pennsylvania Problem

Camille’s Camisoles is rocking the East Coast. You spend so much time on the phone with customers that it’s cutting into your California beach time. So you hire a sales rep to help you out. The rep is based in Pennsylvania. You now have PA sales tax nexus, and this creates a bit of a sales tax puzzle for your business.

In Pennsylvania, there is no sales tax on most clothing. Where your camisoles are considered lingerie or undergarments, they are clearly nontaxable. If they fall into the sporting apparel category, they might be subject to PA sales tax. The special camisole you make for cyclists is taxable as bicycling apparel. Your line of yoga wear appears to be exempt because it can be classified as a gym outfit, but you might want to ask for a tax letter on that one.

One final wrinkle: Your Pennsylvania sales rep is terrific. So great, in fact, that you fall in love and decide to get married. You go to New Jersey to buy your wedding gown, though – bridal accessories and gowns are taxable in Pennsylvania.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.